The EU is now officially back in recession. Unemployment is rising in all of the nations that have submitted to austerity plans. Even the Germans, who benefit from the rest of Europe's pain because capital flight produces very low German interest rates, are headed for a recession later this year, according to the OECD. Europe's economies are prisoners of Merkel's austerity demands on one side, and the speculative attacks of the bond market on the other. In principle, the ECB could extend unlimited support to government bonds, and take the profit out of speculation. Draghi's latest announcement seems to offer just that, but the austerity conditions render it next to useless.
If you watched any of the PBS encore broadcast of the Ken Burns documentary, The War, this past week, you have some sense of what kind of a production machine can be energized by government contracts in the face of a depressed economy. There is so much that we could spend that money on -- energy self sufficiency, infrastructure, a smart electrical grid, public transportation, better education at all levels -- all of which would not only create economic activity and jobs, but would make for a more productive economy. But nothing like this is part of the mainstream conversation. If you propose this sort of thing, you are packed off to the Museum of Un-reconstructed Keynesians. White House economists quietly admit that you are right, but you are politically radioactive (even with a Nobel Prize.)